All right, good morning. We're going to go ahead and get started here. I'm John Davis, and I lead the FinTech and Payments Equity Research effort here at RayJay. We're excited to have Paymentus Founder and CEO Dushyant Sharma and CFO Sanjay Kalra with us this morning. It's going to be a fireside chat. We'll make sure to leave some time for questions at the end. But first off, Dushyant and Sanjay, thanks for joining us.
Thank you for having us here.
Just to start, I kind of want to zoom out. Paymentus continues to be one of the most impressive growth stories, at least in my world. You're looking at 35%+ gross revenue growth and over 40% EBITDA growth this year based off your current guidance. So just at a high level, what are the key drivers and what's enabling Paymentus to take so much market share?
I think in a nutshell, it's the platform and the strategy in some ways. So we took time to build the platform in a way that it was horizontally scalable to any vertical and be able to serve any customer of any size. And that strategy actually allowed us in some ways to crowdsource the functionality from all of the clients. So what that meant was if a client is looking for certain features, we were able to add that to the platform and roll it out to all the other customers at the same time. So now, 20 years later, the platform itself is so meaningfully scaled, and no organization, no company per se can build all of those capabilities without spending the same amount of time in some ways.
So that combined with our ecosystem, which is we have built the Instant Payment Network, allows us to distribute payments and engagement channels to various parties. It is pretty remarkable what our customers are able to get with just one platform, one integration with us. So as a result, we are able to get into different verticals very successfully. There is tremendous operating leverage in the business, which is leading to this kind of success.
OK, great. And I think as we sat here a year ago, you guys had just started to have and call out success with larger billers. And that success has continued through the third quarter. Was there a change in go-to-market strategy? What really kind of drove that incremental step function change and success with the larger billers?
I would say, actually, that was always our plan. We started out in mid-market, and then we started to approach the higher end of the mid-market segment. And then our goal was, and we were successful in the larger end of the market as well. But what transpired a year or so ago, and slightly before that as we signed some deals, is that what used to be a large account for us actually started to look like an upper end of the mid-market because the size of the market expanded for us.
Even the in-house solutions, which used to be out of reach for most of the players in the industry, customers started to like the fact that there is a company out there which is scaled, the business is doing extremely well, and the platform is, I mean, so sophisticated that you can handle all of the workflows with ease. No one has time for years-long projects and has spent millions and millions of dollars on implementation of new solutions. People want to see a platform that can allow them to achieve the success rather quickly within the context of generally a year. That strategy actually worked out extremely well for us, and that has continued on since then.
All right. So another trend as the business has kind of grown up, as you've been a public company now for a little over four years, you've kind of diversified away from the utilities. Not the utilities have slowed down. It's just you've had success in government, insurance, property management. What has led to just the platform that enables you to be agnostic from a vertical perspective and you're having success? What's driven that kind of unlock outside of utilities? Or were utilities just the toughest in the place you had to start, and then once you got that right? How purposeful was starting utilities and then moving on, and kind of what's led to the success in these other newer verticals?
Yeah, I would say one of the benefits we have had is that not only myself, but many of our team members, we come from the first-generation platforms. We actually built some of those platforms, and we learned lessons. We may not have been the smartest folks, but we learned our lessons. We paid our dues understanding that if you keep building these highly bespoke solutions, you're never going to be able to scale the business. So as a result, the other learning lesson for us was that utilities is one of the key verticals which is the hardest to be successful in for an electronic payment company, primarily because the amount of bills, the number of bills these companies send out, and amount per bill is so limited. I mean, a water bill could be $70, and you might be sending out millions of bills.
So they had to, utilities had to work very hard over decades to reduce every single penny or fraction of pennies from the paper process. So if you want to be successful and create a very strong value proposition in that vertical for an electronic bill payment solution, you better get your act together. You better make sure all of your workflows have been well thought out, and the platform is very capable. And knowing how important that was is why we targeted the utility vertical first. We said, let's get the platform done properly. And if we can be successful on a unit economics basis, we can deliver profitable growth in the utility sector. We thought that we would be able to do very similar in other verticals. Other verticals will be progressively easier.
So if you think of government services, insurance, health care, loan repayment, any of these verticals, they haven't had their amount per payment is larger relative to the number of bills they send out. So they didn't have to work as hard on the efficiencies. So when they see that a company has done extremely well in the utility vertical, especially the larger end of the market as well, these verticals, and in many cases, the buyers themselves may have used our platform in paying their bills. And we just met one investor, actually. They said they used Paymentus platform to pay their bill just last meeting. So this is not uncommon anymore. So it becomes a little bit easier to get into different verticals if the notoriety or the pervasiveness of the platform is already there in some ways. And utility was able to provide us that.
OK, and I think I do want to touch on, I think, what is the newest vertical, or at least that you've talked about on the third quarter call in B2B. Just maybe give us a little bit of background on how that came. Was that always on the roadmap, and maybe talk a little bit about exactly what you're doing in B2B, because B2B means a lot of things to a lot of different people.
Correct. Correct. I totally agree. So first of all, the reason we called out B2B on the last call was if you take a step back, B2B is a different TAM altogether. I mean, say, multifold, larger industry than the B2C. So it is a TAM expansion opportunity for Paymentus. But one of the reasons we wanted to call out was that even entering a B2B vertical like Paymentus can just enter into the vertical from a platform and go-to-market perspective, just like we entered any other vertical, insurance, government services, B2B. And part of the reason was that if you think about a utility customer, utility has consumers and businesses. Insurance companies have consumers and businesses. So we were more used to handling business payments than we were getting credit for.
But what we ended up doing was we said, well, could we not go a little bit further and make the process a little bit more automated for the payers in this case and have more sophisticated workflows for approval process and so on, which is required in B2B? Could we add that capability to our platform? And as we added that, several years ago, we added the capability, and we were targeting. We have had B2B customers. Like right now, we have a very large B2B client running on our platform, taking payments, maybe more like 40 countries. And we are the center of their invoice management. If you're looking at any invoice as a business, you are looking at it on Paymentus platform. So we have pretty sophisticated capabilities in our platform.
But this last opportunity was very interesting because it opened my own eyes as well to a new market opportunity from a different perspective. We signed a large client, and we defined large client $1 million+ . And then we get the client launched on our B2B platform and capability, and we realized that they're significantly outperforming our expectations. And then the question is, well, how big that can be for us to be more judicious and thoughtful about going after that market? And as a result, we are looking into that. And it is rather an interesting decision, an interesting point, because all other verticals are doing so well as well for us. So it's not like we're looking for new verticals to expand into, because utility itself, which is our primary vertical, still is growing very rapidly for us. So all other verticals are growing.
So we feel very good about TAM expansion. And the key reason I wanted to make sure that our investors heard it was that one of the key factors in anyone's mind is how durable Paymentus growth algorithm can be and how big this company can be. And that should give you a perspective that we can expand a new TAM in the context of a quarter or a few quarters of getting the customer signed and live. And here we are. We are in good B2B business. So the durability of growth algorithm is pretty robust.
Yeah, no, that's a great point. But I do want to circle back just to the traditional kind of C2B bill pay business, because if you look at that market, you have probably 4%, call it 4%-5% market share. So you still have some pretty significant runway there just in the U.S. But maybe just talk a little bit about almost 20 years in business, we're getting to four. Where do you think that that market share can go over time? Or how do you think about the TAM opportunity? We'll exclude the B2B for a second, but just the traditional kind of bill pay market.
I think Paymentus will be a very large business. Paymentus, I think if you think about 2010, we were a $5 million company, and if you double that number every two years, we are ahead of that right now, and almost all of it is organic, and it didn't happen because we were lucky that we put money into the right bank account, and they just continued to grow. It was a lot of hard work, a lot of thoughtful execution, and also, it speaks to the ability of the platform to scale. I mean, if you think about it, we went public at $300 million of revenue, and right now, we are approaching $1.2 billion, so it's almost four times that number, and we have been, I would say, this is the fourth, four and a half years now since going public.
So five years removed, we have grown the business almost three to four times since then. So we believe that Paymentus is going to be a large company, not only because of your point about 4%. You multiply that by a few times. One of the points I do want to highlight is the 4% is the actual payments we are processing, but the billers we have captured is higher than 4%. So we could grow in our account existing customer base. If 100% of their payments were electronic, we could be easily more than double our size. So that opportunity exists. And on top of that, if we continue to capture more market share as we are doing, that opportunity is significantly larger as well.
But then there is a force multiplier which comes in out years, which is if you are dealing with tens of millions of households and millions of businesses on your platform, and it's non-discretionary bills too. If I'm a pizza shop, I have to pay my utility bill to stay in business, just like a household, to keep their lights on. If Paymentus could figure out a way to offer more capabilities there to that cohort of customers, Paymentus could be a multifold larger company even from that point on. So we are building a very large business.
Oh, that's a great segue. Sanjay, maybe just talk a little bit about how we build up. You've guided to 20% kind of medium-term gross revenue growth and 20%-30% EBITDA growth. Obviously, you're outpacing that today. But if we just think about the normalized growth, how do we get to 20%? Do you think guys think about new logos, NRR, kind of penetrating your existing customer base, getting them to pay more of their bills on the Paymentus platform? Just how do you guys think about and build up to that 20% normalized growth?
Yeah, so our long-term CAGR of 20% top line comprises of two big components. The bigger component is the new implementations or new logos, as you said. So we are winning businesses. The bookings are coming, and implementation of that every year is happening at a great pace. The biggest building block is new implementations. And the second building block is existing customers growing because of the same- store sales. So both of these are the growth vectors. And what we are seeing is that, and if I may pick with the earlier discussion of the scale, and given our market share is approximately 4%, and we are growing significantly top line, I think the very interesting part, or most important part, I would say, of the growth is that we are growing profitably.
It's not just the top line growth, but growing the profitability every year, even though scaling significantly. I think that's very interesting. That stems from the fact that the platform, when it was developed, it was developed with the idea that the operating leverage of the business should be very high as we scale. That's what's coming to fruition right now, and that's what we see every quarter. In fact, last quarter, we delivered incremental EBITDA margins of 60% +. That's pretty interesting to us that the business can scale. To your earlier B2B question, I would say that getting into a new kind of a vertical without spending any significant OpEx, that's also highlighted based on the results we delivered. While the building blocks are definitely the bookings and the same- store sales, in the bookings itself, the diversity is happening.
The diversification across multiple verticals, starting from utilities, which is 50%, but all the other remaining verticals, they are also growing. So I mean, the top line growth is actually happening in all the verticals. That's the most important part for us, and that also gives us visibility of outer periods and the durability of the revenue growth.
No, that's great. I did want to kind of double-click. We talked a little bit earlier about expansion, not only across new verticals, but also larger billers. One of the things that really stuck out to me in the third quarter was the CP per transaction. It was up about 4% year-over-year. Usually, when you move to larger billers, you tend to get some price compression, or that CP per transaction would come down. So maybe just speak to what's causing that and then kind of the durability of that growth on a year-over-year basis.
Yeah, so as we are getting improvement in bookings and diversifying, in the past few quarters, we saw that when we onboarded large enterprise customers, our Contribution Profit per transaction kind of softened up, as you would expect. But as we have evolved and as we have scaled the business and as we are getting more large customers, we are also getting across those customers who see much more value in our platform than just the transaction fee. So it's the entire process from start to finish. I mean, there's a customer service element to it. There is a processing element to it. And there are multiple things in the infrastructure or the platform which the billers were not able to utilize or see the value of earlier, which they are seeing now. So I think overall, the value proposition is also changing. A platform could have much more meaning to a platform compared to other billers. I think it's a matter of the customer mix, if I have to just summarize. Overall, we could see this happen in future as well.
OK, great, and before kind of moving on to 26 and beyond, I did want to just touch on fourth quarter trends. Anything? You guys have a pretty durable, non-discretionary business, but just curious, anything surprising? It's been about a month since your call. Quarter-to-date t rends relative to the guidance you outlined?
Nothing significant to highlight.
OK. And then I think Sanjay made some comments on the Q3 call that we should think about 2026 framework similar to how you laid out the 2025. So maybe just remind folks your guidance philosophy and kind of where you did start the guide this year.
Yeah, so we provided initial guidance in the last call for 2026, well, it's a preliminary way of modeling the business, although the formal guidance we will announce in the next call in February in 2026, but overall, the growth rates which we guided to last year over 2024 midpoint for 2025, I think same growth rates could be used over the midpoint of 2025 for coming at 2026 initial model. I think that's the right way to think about it, and we have got three key metrics. One is the top line. Then is the Contribution Profit. And then the Adjusted EBITDA dollars. All the growth rates are different for all the three metrics. They all should be very consistent with what we provided last year.
Right, which just for some context, I think gross revenue guidance last year was 19%-22%. So let's just call it roughly 20%. Gross revenue was the starting point last year.
Yeah.
OK, great. Sanjay, hit one more. You hit on a little bit earlier on profitability and margins. I mean, I think about 35% EBITDA margins today is where you sit. Last quarter incrementals, I think, were a little bit over 60%. How do you think about where we could get from a margin perspective? Is that incremental margin sustainable? Obviously, you have a huge growth opportunity in front of you. At any point, could we see margins decline as you invest? Just overall, how do you think about margins and growing profitably, given the size and scale of the business today?
Yeah, if I take a step back before I answer this question, if you look at 2024 versus 2025, overall, for the whole year, we believe we were approximately 30% EBITDA margins, and now we are approximately 35%, so seeing a 5% improvement year-over-year is definitely not only impressive, I would say. It speaks to the strength of the business, but of course, the next question is, is the trend going to continue? And how do we look at going forward? I think the business is very strong. The operating leverage is very high. The bookings are strong. The backlog is good. The visibility is good. The mix of the verticals is very good. We are not concentrated on any one or two customers. Our business is diverse, so we feel there is a scope.
There's an opportunity for us to do better than what we are doing, although we are very prudent when we talk about numbers or when we guide, as you have seen, so we would not set any expectation that what the number would be next year or outer years. The only numbers we've guided long-term are that our top line grows 20% in the long-term CAGR model, and bottom line grows 20%-30%. That could mean that definitely it's accretive every year, and we should expect improvement, but it's very hard to pinpoint what the numbers will be, but we feel very good about the prospects, especially the long-term prospects of the business, because of strong operating leverage. We don't have to spend a lot of money for expanding into any one particular vertical or two particular verticals or doing any expansion.
On the other hand, the pipeline is very impressive in front of us. And our market share is so small. So we would not lose any opportunity. And we would not be reluctant to spend any money, if we need to, to convert the pipeline to bookings, because that will have a better return on investment for our investors and for us as a company than just keeping cash on the balance sheet. So it's a double purpose of our cash that we've got enough cash to spend when there are opportunities there. At the same time, if we can convert the pipeline to bookings, so we would not be shy of spending. We've been very diligent and very thoughtful before we spend money, as you would have seen from the numbers. But at the same time, we should leave room that there might be a quarter or two or a year where we would like to spend and make the right investments for the business. Although nothing is in the pipeline that we are going to spend in Q4 or in next year, but when opportunity arises, we will not be shy to do that.
OK, great. Dushyant, I think one of the things that's been of the many impressive attributes of the business. You've had a really strong backlog for a long period of time. On the Q3 call, highlighted continued backlog. But I think what's been even more impressive is you've sped up the implementation times. So maybe just talk about as you've moved into larger billers. Again, usually it goes the other way. But you've not only moved into larger billers, but you've also sped up implementation times. So maybe just talk about the processes or improvements that have led to that.
Yeah, thank you for the question, but also the compliment there. I think I was going to say that historically, implementation speed has always been a hallmark of our success. What had transpired during the COVID time frame, as we were expanding into the larger end of the market, at the same time, we had lost connection to the boardrooms, and we were not able to, our typical approach would be, when you're dealing with a large client, you want to sit in front of them, their technology groups, their security groups, their compliance groups, and figure out whatever needs to be addressed, and then have a path forward so that we stay on the project plan. That changed in COVID, and as a result, we saw some timelines were elongated.
But we took that as an opportunity to say, what are the areas we could invest in right now in our tooling, which will allow us to get even further improvements or efficient in terms of getting the implementation timelines down? So we were very successful at that. So as we were doing that, the COVID restrictions were also getting behind us. So a combination of our internal better toolkits and open boardrooms allowed us to whiteboard solutions and implement customers at a rapid pace. But today, actually, a large client to us, to Paymentus, is generally a business-as-usual activity. We now have a framework. We know, not saying that a customer still can't change their mind or something else can happen or some other event, macro event could take place from here on out.
But in a business-as-usual world, the business-as-usual is the modus operandi for us in how we get large customers live, because we have figured out what the workflows need to be, at what different touch points we need to have in person as well as remotely, the different tools we need to make sure that we are able to convert the large amounts of data and so on. So all of that put together is leading to faster implementation speed, while at the same time, the average customer size is rising.
Yeah, no, and we've talked a lot about the growth opportunity, the impressive revenue growth, the profitability, and the margins. But maybe one of the most underappreciated parts of the story is the free cash flow generation here over $100 million in the last 12 months, about 140% conversion. So maybe, Sanjay, just talk a little bit about what's driving that impressive free cash flow conversion. And then I'll ask Dushyant what he's going to do with that free cash flow.
I think there are two things I'd like to point out. Number one, this business, the way it was set up, it was set up not only with a strong operating leverage, but also a reflection of that operating leverage in the cash flow, and that's what's coming to light right now. It is not a very significant working capital-intensive business. The new logos we are getting since last few quarters or years are also the customers who see a lot of value in the business, and we are able to get really good payment terms with them, so when we help our customers improve their DSOs, we have our own job to improve our own DSOs, and that's what's coming to light, so I think getting great customers who pay on time, not significantly capital-intensive business, is generating a good free cash flow. Overall, it's becoming more repetitive now. We are leaving ample room for spending in working capital if we ever need to, or spend for sales and marketing for the opportunities to convert pipeline, which I earlier discussed.
Right, so Dushyant, you have a few hundred million dollars of cash on the balance sheet today, obviously generating a healthy amount of cash. So how do you think about allocating that between organic growth opportunities, M&A, buybacks? Just generally speaking, how do you think about capital allocation?
I would say, first of all, a strong balance sheet, a strong cash position, and a profitable business, and a business that's highly scaled over $1 billion. These are attractive traits large organizations are looking for in an organization in addition to a technology solution, which is best in class. So we believe that these things are already helping us grow the business. I personally prefer having a strong balance sheet and having a strong cash position all the time for that reason, because it's a very strong catalyzing story when large organizations are looking to switch to Paymentus, but at the same time, we are a fast-growing company, and growth remains a very important driver for our strategy, so as a result, we'll continue to look at opportunities where we can deploy capital for organic growth.
M&A is another area where, based on our success to date, it hasn't been easy to find the right type of investments to make just because we have a very humble DNA in the company. And we used to think everyone else is better than us. And then you start to take a look at companies in terms of finding out, are there companies growing at the same pace as Paymentus and delivering same operating margins and so on? Not happening. Not easy to find those types of companies. So now we're looking at, are there opportunities where there may not be accretive immediately, but can Paymentus make them accretive and not pay for that? So we'll see if we've come across anything, but nothing on the cards. Share buyback is not necessarily on the card right now.
OK, I think we have about a minute or so left. So see if there's any questions in the audience. If not, I got one more for him. All right, so maybe as we kind of sit here and investors kind of walk out of this presentation or the webcast, what's the one or two key messages that you want people to walk away with?
I think number one would be, think of Paymentus as an investment that will return long-term shareholder returns. It has done for the shareholders who invested in the company 10 years ago. It continues to do that now. So it's a long-term, very solid investment. That's one. The second is the durability of the growth algorithm is based on all of the key things you will want to see in a company: a strong platform, a strong competitive differentiation, but at the same time, have a tremendous time opportunity. We have only captured a fraction of the market share. But last but not the least, you also want a business that gets profitability, understands the value of expanding profitability. So our goal remains build a large business, continue to pursue the durability of growth through all of our innovative framework, and continue to pursue expanding margins.
OK, I think we're out of time. So we're going to have to wrap it there. Thanks, Dushyant.
Thank you so much.
Thank you.
Thank you.